Market Rates and Trend Forecast

July 2nd, 2019

Ocean Freight

Ocean freight rates for the first half of July increased by approximately US$350/FEU to the USWC and US$400/FEU to the USEC compared to the second half of June. Part of the rate increase can be attributed to the start of the Trans-Pacific peak season as well as additional blank sailings this month. The renewed temporary truce between the U.S. and China brings new hope for a permanent solution but the scenario seems awfully familiar to the G-20 summit last year in Argentina.

July Blank Sailings During Peak Season

The Ocean Alliance consisting of CMA CGM, Cosco, OOCL and Evergreen has announced 3 blank sailings in July that will remove a total of 34,250 TEUs from capacity on top of the 29,100 TEUs that were removed in blank sailings in June. The void sailings show capacity discipline from ocean carriers since spot rates have been deteriorating due to the U.S./China trade war where exports from China to the U.S. has dropped approximately 4.6% in the first 5 months of the year. Blank sailings are efficient for ocean carriers to push up spot rates through the reduction of capacity while lowering costs when spot rates are declining.

The 3 blank sailings in July are:

1. July 1st – North Asia to Seattle and Vancouver

2. July 13th – North Asia to Los Angeles and Oakland

3. July 15th – North Asia to Seattle and Vancouver

MSC – Temporary C-TPAT Suspension

Authorities at a Philadelphia port found and seized 16.5 tons of contraband on June 17th on an MSC vessel that resulted in a 90-day temporary suspension from the Customs – Trade Partnership Against Terrorism (C-TPAT) program which leaves MSC without the “trusted trader” status. Although the suspension is temporary, importers are susceptible to an increase in container inspections and cargo delays.

U.S. Customs say that importers that are C-TPAT certified are 3.5 times less likely to have their cargo examined and 7 times less likely that their cargo will be extensively examined. Cargo inspections generates additional costs from the inspection itself, possible detention and demurrage charges as well as cargo delays.

In response, MSC says that “customers should only expect minimal disruptions”. However, there is the possibility that C-TPAT certified importers may temporarily shift their cargoes to other ocean carriers to minimize the risks associated with inspections which may lead to overbooking.

G-20 Summit – U.S./China Trade War Truce

The U.S. and China declared a temporary truce in their trade war over the weekend at the G-20 summit in Osaka, Japan that sparked renewed hope in reaching a solution to the year-long trade war. President Donald Trump announced that the U.S. would hold off imposing an additional US$300 billion in tariffs as the two countries will resume negotiations.

However, this scenario is reminiscent of the G-20 summit last year in Argentina where the first truce took place but did not result in a trade agreement after months of negotiations. Nonetheless, this temporary truce brings optimism and may bring relief to shippers and importers. This also reduces the need for front loading related to upcoming tariffs but the possibility for front loading in preparation of the upcoming low sulfur mandate still exists.

Air Freight

Air freight rates from Hong Kong, Shenzhen, Guangzhou and Shanghai remains largely unchanged from June levels as airlines are coping with soft air cargo demand, volatile oil prices and weak Asian manufacturing statistics due to the ongoing U.S./China trade dispute.

Hong Kong, Guangzhou, Shanghai, Shenzhen: Rates remain mostly unchanged from June levels although airlines will be reviewing on a weekly basis. Oil prices have been volatile in the past few weeks where fuel prices can comprise of one-third of an airline’s operating costs.

Taiwan: Air freight rates in Taiwan have increased by 5%-10% due to the Eva Air strike that commenced on June 20th. Although Eva Air has said that freighter planes are operating normally, the effect has spilled onto other airlines in Taiwan causing rates to increase. Eva Air is Taiwan’s second largest airline.